Public Bill Committee

[Janet Anderson in the Chair]

Clause 82

Scope of mechanism

Question proposed, That the clause stand part of the Bill.

Mike O'Brien: Given that we are starting this chapter of the Bill, it would be useful if I set out what it will do. It has a substantial importance in relation to how divorce and pension settlements are arrived at. If I explain the broad background to that, we may be able to proceed fairly briskly through the other clauses.
In 1999, when the Government legislated to allow divorcing couples to share pensions, we made it clear that we were committed to ensuring that divorcing couples reach fair and equitable settlements. Those provisions were extended to civil partnerships under the Civil Partnership Act 2004. Although I shall refer mainly in my speech to divorce, the provisions that we are introducing apply equally to divorce or the dissolution of a civil partnership. We have ensured that, when couples divorce, they have the choice to share their pensions like other assets in a way that ensures a clean break, independence and income in later life.
However, the Pension Protection Fund compensation is not a pension and the existing pension-sharing law does not apply to it. The PPF was created in 2004 to pay compensation to people whose sponsoring employer has experienced an insolvency event and whose defined benefit pension scheme cannot pay a pension at a level that is at least equivalent to the pension paid by the PPF. The fund compensation can be taken into account when reaching financial settlements, but unlike cash, property or pensions, compensation cannot be shared when the couple or a court decide that that would be the best way in which to divide their assets.
When a member of a divorcing couple has pension rights, the court can transfer the value of some or all of those rights to the other member of the couple. That person can then buy a pension of their own to ensure their independence and security. The courts can also do that while a pension scheme is being assessed for transfer to the PPF. However, when a pension scheme has actually been transferred to the PPF, it is not possible to make an order to divide the compensation payments to which people are entitled. That means that PPF compensation could not be shared even if that compensation were the only significant asset belonging to a divorcing couple.
While there is no evidence that up to now a person has lost out, clauses 82 to 95 will ensure that sharing compensation is an option. The provisions allow the courts to treat PPF compensation in a similar way to pensions on divorce or dissolution of a civil partnership. A group of amendments that we shall discuss shortly would extend the provisions to Scotland.
Clause 82 describes the scope of the compensation-sharing provisions. It sets out the key principle for what follows and explains that PPF compensation is shareable—a principle that is fundamental to the compensation-sharing provisions—unless regulations make an exception such as when compensation is being paid to a survivor in respect of a previous marriage.

Nigel Waterson: I am grateful to the Minister for setting out the thinking behind the clause. When he talks about PPF compensation, will he confirm whether the provisions will apply also to the financial assistance scheme?

Mike O'Brien: No. We shall have to look at the way in which the financial assistance scheme applies and the provisions under which it will operate.
Clause 82, like the rest of the chapter, has been drafted so that, as far as possible, compensation sharing follows the same principles and uses the same mechanics that currently apply to pension sharing. In that way, we have sought to capitalise on familiarity and avoid unnecessary additional complexity.

Nigel Waterson: As I have said, I am grateful to the Minister for setting out the thinking behind this set of clauses. It is useful to make a few general comments on clause 82 before we discuss some of the detail. It was Lord Nicholls in the case of Brooks v Brooks, to which I referred earlier, who said:
“For many married people their two single assets of greatest value are the house in which they live and, as time passes, the accumulating pension of the money-earner.”
In a previous debate about safeguarded rights, we looked at how the law has developed on pensions and their treatment in matrimonial proceedings. There was a time when they could be taken into account, but there was no power to make an order in respect of pensions specifically, and what happened is what currently happens for PPF payments—the court could, in certain circumstances, broadly take into account the entitlement in dividing up other assets of the marriage. The 1995 legislation first gave the power to attach or earmark pensions. As the Minister has said, the Welfare Reform and Pensions Act 1999 amended the Matrimonial Causes Act 1973 such that what could happen from then on was the sharing of pensions. That was based on a consultation carried out under the previous Conservative Government, so clearly there was an element of consensus.
The 1999 Act made it clear that from then on, pensions sharing could take place. As I understand it, it is not compulsory and will always remain a matter of discretion for the courts at any given time and applies to occupational pensions, personal pensions, SERPS and the state pension. It is something that has come to be applied a great deal in our courts. There are some 200,000 divorce cases a year, at least, and it would be worth knowing in how many cases pension sharing takes place already. In 2000 it was thought that earmarking only took place in 300 of the then 150,000 cases per year, but I suspect that the figure for pension sharing is now a great deal higher.
It is puzzling how this anomaly came to be. It is perhaps the fault of all of us, but perhaps the Government more than us, that nobody spotted it during the passage of what became the 2004 legislation. It is clear that in certain circumstances a husband who has accumulated a significant pension in a company that then has an insolvency event could, if the timing was right, by receiving compensation payments under the PPF, avoid giving his wife a fair share of that substantial asset in the divorce proceedings. I give considerable credit to the Baroness Hollis, who, in her usual indefatigable way, raised this issue during the passage of the most recent pensions Bill—what became the 2007 Act. She tabled an amendment to deal with the issue, making the point in the House of Lords that, although it is perfectly possible to make pension-sharing orders based on the 1999 legislation, the courts cannot make any kind of order relating to PPF compensation. It strikes me as bizarre that that was not spotted at the time, but there we are. She said:
“Technically this was done because moneys from the PPF or FAS”—
I will come back to that in a minute, if I may—
“were compensation or a contribution to loss rather than the original pension.”—[Official Report, House of Lords, 6 June 2007; Vol. 692, c. 1121.]
To pause there, I suppose that they were treated legally as if the husband had had a road traffic accident, for example, and received damages by way of compensation, which I assume would not normally be taken into account in a matrimonial proceeding. As the Baroness went on to point out, that may represent a significant asset; she gave the example of a PPF pension of £20,000, requiring a pension pot of nearly £300,000. She said:
“The spouse’s access to a share of the pension, which may be more valuable than the home, is determined not by the circumstances of the divorce, not by the size of the assets involved, and not by any offsetting that may have taken place, but by the timing of the company’s fortunes. I do not think that that is fair.”—[Official Report, House of Lords, 6 June 2007; Vol. 692, c. 1121.]
Responding for the Government, Baroness Morgan of Drefelin said that the Government would give the matter further consideration, hence clause 82 and following. She made the point, which the Minister touched on, that the legislation already allows that the value of any PPF compensation may be taken into account as an asset. That is a throwback to what used to be the case prior to pension splitting and pension sharing being placed on a statutory footing. In passing, I also mention that my hon. Friend the Member for South-West Bedfordshire has tabled a new clause dealing with the sharing of personal accounts. We will no doubt debate that later on.
The Minister’s response to my intervention about the relevance or otherwise of the financial assistance scheme is very interesting. Yet again there has been an oversight. From the Minister’s response it seems clear that the clauses do not apply to the financial assistance scheme. However, it is statistically likely that of the 150,000 people potentially affected by the FAS, some may sadly go through matrimonial proceedings. As a result of the lacunae in clauses 82 and following, compensation—or perhaps we should call it assistance—could be disregarded from the point of view of any matrimonial settlement.
The Minister will no doubt say that the holding position on that is what used to happen before pension splitting and pension sharing came in: when dividing up the matrimonial assets, the courts could take some account of any entitlement to assistance under the FAS. However, with the greatest of respect, that is not good enough. I would like to tease out from the Minister a bit more of his current thinking on how to deal with that issue. On our first morning back after a pleasant break, I hope that it will not sound too churlish to say that this problem is entirely of the Government’s own making. It was a political decision to set up the FAS as a wholly separate organisation at the other end of the country, so as not to underline too heavily the fact that it was paying out to claimants at a much lower level across the board than the PPF was paying to claimants under the scheme. Purely because of an accident of timing, it has always been the case that FAS claimants have been treated more shabbily in all sorts of ways than PPF claimants. I am sure that we will debate the matter in more detail later on.
The Government have always been at pains to say that under PPF, people receive compensation—100 per cent., 90 per cent., depending on the situation—whereas the FAS merely provides assistance. As we said when I was growing up in Yorkshire, “As cold as charity”. That is why we have a problem with the clause. Therefore, I press the Minister to say a little more about to what extent he and his officials have addressed that obvious gap in the legislation, and what he thinks are the options to deal with the need to bring the financial assistance scheme into the fold, not only in terms of compensation, which we will debate in more detail, but about how entitlement to those payments will be dealt with during the course of matrimonial proceedings.

Danny Alexander: It is a pleasure to be back once again under your chairmanship, Mrs Anderson, after our short recess. I am grateful for the opportunity to make a few general comments about this chapter of the Bill. Clearly, the idea of extending pension-sharing provisions to people receiving benefits under the pension protection fund seems to be absolutely right. As the hon. Member for Eastbourne observed, pension sharing generally on divorce has been common practice for a number of years. Plainly, there was an oversight at some stage that led to it not being included in the initial PPF legislation.
I would like to know whether the solving of this problem has been prompted mainly by the comments made in the Lords under the last Pension Bill—and I pay tribute to Baroness Hollis—or whether particular cases have come up. Is the Minister aware of people who are currently receiving compensation under the PPF, who have been in that situation and have not been able to have the pension sharing that they wished in the unfortunate event of a divorce or separation? If so, how is he prepared to deal with such cases? It may be that no such thing has arisen, in which case it is perhaps fortunate that this is being dealt with now.
I would want to echo, at least as strongly, the comments made by the hon. Member for Eastbourne about the financial assistance scheme. Surely, given the recent changes made to the financial assistance scheme, which have finally brought it onto a more level footing with the pension protection fund, the provisions to allow sharing of benefits under the financial assistance scheme on divorce should be extended to the financial assistance scheme. Given the way in which the Government have at long last, and rightly, moved away from the concept of a core pension under the financial assistance scheme to allow wider benefits to be paid, all the rules and regulations that apply to pensions more generally and which we are seeking to extend under these clauses to the pension protection fund should apply to the financial assistance scheme. I note in passing that I have been one of those who have advocated that the administration of the financial assistance scheme should be handed over to the pension protection fund for reasons of efficiency. It is clear that the management of the pension protection fund has a good track record in getting things done quickly with cases so far. The rules that it has enables things to be done quickly, and it seems to make sense that it should take responsibility for this.

Nigel Waterson: There is a saying that failure is an orphan and success has many fathers, but I remind the hon. Gentleman that in the passage of the 2004 pensions legislation, I argued for an amendment that would have set up a mini PPF within the PPF that would have dealt with the claims that arose prior to the cut-off date for the PPF. I have always felt, from then onwards, that it would have made far more sense to have one single administration, and I am delighted that the hon. Gentleman takes the same view.

Danny Alexander: The hon. Gentleman has the advantage over me in respect of legislation passed in 2004, as I was not a member of the House then, but I am very happy to take his word for that and to commend him for his foresight in 2004. That seems to be quite right. I am sure that we will not always proceed in this spirit of consensus between the Conservatives and the Liberal Democrats, but on that point, we are in agreement. I hope that the Minister can explain a bit more of the background as to why so far in the Bill the Government have chosen not to extend this to the financial assistance scheme, and at what stage he intends to bring that measure forward, o that the benefit can be shared more widely.

John Greenway: I want to intervene briefly to correct my hon. Friend the Member for Eastbourne: the financial assistance scheme office is at Monks Cross in York in my constituency and it does not regard itself as being at the wrong end of the country. In fact, but for an accident of history, we would be at the wrong end of the country and our Parliament would be based in York.

Nigel Waterson: I think that the record will show that I said “the other end” of the country, and as someone who was born and brought up in Leeds, nor could I possibly be thought of as someone who thinks that Yorkshire is the “wrong” end of the country—quite the reverse.

John Greenway: I stand corrected, but I plead in aid of myself the fact that I have a very dodgy right ear. As you can see, Mrs. Anderson, I have had a good week away, and I am afraid that I got too much water in my ear, so I did not quite hear my hon. Friend correctly. However, there is an important issue here. I have listened to what my hon. Friend, the Minister, and the spokesman for the Liberal Democrats have said, and I think without question that the financial assistance scheme entitlements should be included in divorce settlements. However, for that to happen, the courts need certainty, because when marriages break up—and as many hon. Members know, I have been through that experience, although I am now gladly remarried—there has to be fairness between both sides. For there to be fairness, there has to be certainty, so I think that we can conclude in this debate that it is right that financial assistance scheme entitlements should be part of divorce settlements. For that to happen, we need to see these new arrangements clearly bedded down, and we need that degree of certainty as to what individuals are entitled to and therefore what they can reasonably be expected to award to their spouse.
In a sense, I am making two pleas to the Minister. First, it would represent progress if a provision covering the FAS were included in this part of the Bill. More generally, there is still much to be done to ensure that the FAS is the effective system of support for people who have lost their pension and that it can be shared between couples when their marriages have broken down.
I hope that our exchange has been useful to the Committee. The issue goes slightly beyond the measures under the Bill and you have been extremely generous, Mrs. Anderson, in allowing us to have a more general debate so I shall not trespass on your courtesy even further. However, given his reaction to what I and other members of the Committee have said, the Minister seems to have grasped our point.

Mike O'Brien: I wish first to deal with a couple of extraneous points and then move to the FAS division of payments on divorce. I was asked for the number of cases of pension sharing. That is difficult to identify due to the different jurisdictions involved and how details of judgments are recorded. We do not know the number of cases, but the hon. Member for Eastbourne is probably right that it is likely to be in excess of the figure he quoted, and that it is increasing year on year.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey asked whether we had identified any cases. There is none that we are aware of, but that does not mean that there are not any because they could have been dealt with through the courts, between lawyers or in some other way. There may well be cases, but they have not come to the notice of the officials in my Department. In a sense, we are discussing unfinished business from 2004 but, as members of this Committee more than any other Committee will know, the financial assistance scheme has been undergoing a whole series of transitions in recent years, and it has not yet completed its current transition. Indeed, we shall be tabling amendments that we shall probably consider today or Thursday to deal with the financial assistance scheme.
The hon. Member for Ryedale is exactly right. The law, particularly in the area under discussion, requires certainty. What the financial assistance scheme does not have is certainty because we have not laid down its regulations, details and provisions as the scheme will stand within six months from now. We therefore need to get those provisions in place and then make reference to them by setting out the way in which we intend to bring forward pension-sharing arrangements for those who are affected by divorce and are part of the financial assistance scheme.
We want to bring forward similar provisions to those that apply to the PPF in due course for those affected by the financial assistance scheme. There is the possibility of a welfare reform Bill in the next Session, so we are looking for the ability to introduce such provisions in that Bill. If I were able now to put together the provisions in respect of the financial assistance scheme, I could draft amendments for discussion in the other place, but we cannot do that because we do not know the precise provisions of the financial assistance scheme when considering how to divide up the pension-sharing arrangements in due course. The matter is about certainty and we must make progress, first, by creating the provisions of the financial assistance scheme and, secondly, by setting out the circumstances under which we would allow the pension-sharing provisions that we want for the PPF. We cannot do that in regulations; we will have to do it in primary legislation because it will directly affect provisions in relation to divorce. That is how we intend to proceed, and I hope that that helps.

Nigel Waterson: I am grateful to the Minister for giving way and for his assurances. I take his point, and the point made by my hon. Friend the Member for Ryedale, about the current uncertainties in the FAS. Will he confirm whether, in bringing forward similar proposals on the FAS to the ones that he has introduced on the PPF, he might look at some element of retrospectivity—[Interruption.]—Retrospection. If so, people could look back and apply those measures to cases that arise now. Will he also confirm that a smart divorce lawyer could read our debates, particularly our debates on the changes to the FAS, and have a reasonable idea of the funds that might be made available, so that it is possible, even now, to take them into account, in a rough and ready way, in a matrimonial settlement or a court judgment?

Mike O'Brien: Let me first defend the hon. Member for Eastbourne on whether it is retrospection or retrospectivity. I think that it is retrospectivity because retrospection means looking backwards and we are not looking for the legislation to look backwards, we want it to affect things going back with. That would be retrospective legislation, and therefore I think that the hon. Member for Eastbourne is right, it is retrospectivity. No doubt we will have Guardian editorials on that point in due course. In any event, we would obviously need the consent of law officers to look at this sort of issue. They are, quite rightly, reluctant to allow retrospective legislation for all sorts of reasons that people are aware of. Essentially, it is wrong in normal circumstances for people to be subject to laws that they were not aware would be in place at the time that they behaved in a particular way. None the less, retrospectivity happens on occasion, particularly when people have been warned that legislation will be brought forward and they are on notice that it may affect them.
I hear what the hon. Gentleman says about the need to enable any retrospective legislative change to affect people from here on in. I will have to make enquiries about that and I will comment in due course on whether I can do that.

Question put and agreed to.

Clause 82 ordered to stand part of the Bill.

Clause 83

Interpretation

Mike O'Brien: I beg to move amendment No. 164, in clause 83, page 39, line 28, after first ‘order’, insert ‘or provision’.

Janet Anderson: With this it will be convenient to discuss the following amendments:
Government amendments Nos. 165 to 181
Government new clause 2—Projections of numbers of those on means-tested benefits.

Mike O'Brien: The amendments extend the provisions of the Bill relating to pension compensation-sharing on divorce, or dissolution of a civil partnership for couples in Scotland, and I hope that hon. Members will support them.

Nigel Waterson: Again, I wish to make a short point. Will the Minister confirm that the current rules about pension-sharing apply in absolutely the same way in Scotland as they do here? Looking at some of the words that we do not tend to use in English law, I wonder whether they have a wider range of powers and whether he can give the Committee any idea of what those might be; “declarator of nullity” sounds quite dramatic, but he may have some other information on that. Most importantly, I wonder whether the 1999 legislation applies in exactly the same way in Scotland, or whether there is some strange variant of it that we need to know about.

Danny Alexander: The first thing that I want to say, as a Member representing a Scottish constituency, is that it is good that the Government have decided to extend this benefit to cases applying in Scotland, of which there are a substantial number under the PPF and the FAS. It is perhaps a little much to expect the Minister to be a Scots lawyer as well as an English one. I am certainly neither. However, I have had no representations from legal authorities or others in Scotland wishing to object to this. Given that Scots law differs, quite markedly in some respects, to the law in England, it seems to be a sensible way to extend the provisions in a way that is broadly similar. From my reading, the effect is broadly the same as that of the legislation proposed for England and Wales. I hope that is of some help to the Minister in responding to the hon. Gentleman’s questions.

Mike O'Brien: It is, indeed, of enormous help.
As far as I am aware, the provisions will have broadly the same effect, although divorce law is devolved in certain respects in Scotland and therefore there are some differences. Qualifying agreements are used in Scotland, but not in England and Wales. At present, couples in Scotland can make a qualifying agreement to set out how a pension is to be shared. We seek to extend that to pension compensation sharing. Qualifying agreements differ from court orders in that they are not orders of the court. However, they still activate pension sharing. The mechanism for the implementation of a qualifying agreement is to effect pension sharing, as set out in section 28 of the Welfare Reform and Pensions Act 1999. Once the agreement has been made in the prescribed form in Scotland, it has the same effect with regard to pension sharing as a court order. That seems to be the main difference.

Nigel Waterson: I am grateful to the Minister for advising the Committee that that is not regarded as a court order because it is not an order made by the court. Even in Scots law, that must be a fairly simple concept to grapple with. I would like to be sure about this. Do the qualifying agreements have all the status and enforceability of court orders? This issue that will clearly keep me awake at night.
 Mr. O'Brien rose—

Danny Alexander: Without wishing to steal the Minister’s thunder, it is certainly the case that a registered minute of agreement, which is what this describes, is not a court order. However, if it is breached, it can be enforced through the courts and variations can be agreed between parties using the court system and so on. The way in which it is enforced is broadly similar.

Mike O'Brien: Mrs. Anderson, you will be relived to know that the hon. Member for Inverness, Nairn, Badenoch and Strathspey is entirely right.

Amendment agreed to.

Amendments made: No. 165, in clause 83, page 39, line 28, at end insert
‘, or provision contained in a qualifying agreement,’.
No. 166, in clause 83, page 39, line 30, after ‘order’ insert ‘or provision’.
No. 167, in clause 83, page 39, line 31, after ‘order’ insert ‘or provision’.
No. 168, in clause 83, page 39, line 33, at end insert ‘or provision’.—[Mr. Mike O'Brien.]

Clause 83, as amended, ordered to stand part of the Bill.

Clause 84

Activation of pension compensation sharing

Amendment made: No. 169, in clause 84, page 40, line 10, at end add—
‘(f) a pension compensation sharing order under section 8 of the Family Law (Scotland) Act 1985 (c. 37) (orders for financial provision);
(g) any provision corresponding to provision which may be made by such an order, and which—
(i) is contained in a qualifying agreement between the parties to a marriage or the partners in a civil partnership,
(ii) is in such form as the Secretary of State may prescribe by regulations, and
(iii) takes effect on the grant, in relation to the marriage, of decree of divorce or a declarator or nullity or (as the case may be) on the grant, in relation to the civil partnership, of decree of dissolution or of declarator of nullity,
except where the provision relates to the same rights to PPF compensation as are the subject of an order made under section 12B(2) of the Family Law (Scotland) Act 1985 (c. 37) (order for payment of capital sum: pension compensation).
(2) For the purposes of this Chapter, a qualifying agreement is an agreement which—
(a) has been entered into in such circumstances as the Secretary of State may prescribe by regulations, and
(b) is registered in the Books of Council and Session.’.—[Mr. Mike O'Brien.]

Clause 84, as amended, ordered to stand part of the Bill.

Clause 85

Creation of pension compensation debits and credits

Amendment made: No. 170, in clause 85, page 40, line 18, after ‘order’ insert ‘or provision’.—[Mr. Mike O'Brien.]

Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: I have some queries, but I am sure that now the Minister is back on his home territory of English law he will have no difficulty in answering them. These issues are mainly to do with the business of the cash equivalent. Perhaps I can deal with clauses 85 and 86 rather than raising points regarding clause 86 specifically.
According to clause 86, regulations are yet again to be made for the calculation and verification by the board of the cash equivalent. May I ask the Minister, perhaps with growing plaintiveness, whether there is the slightest prospect of these draft regulations, or any draft regulations, being available to the Committee as we plough through our proceedings? For example, it is pretty well nigh impossible to make any judgment about how clause 85 is going to work without seeing the draft regulations. This might be a useful opportunity for the Minister to give us a reality check on where we are with all the other draft regulations under this Bill.
May I also ask a specific question about subsection (5)? It talks about “the valuation day” being such day within the implementation period as the board may specify. Again, it would be interesting to get some concept of how such a valuation day is going to be established, and what criteria the board would use in making such a determination. Obviously, if there is a big variation in the valuation day, it could make a significant difference to the amount of compensation payable under these provisions. In my habitual spirit of constructive debate, may I ask the Minister to help me on any of those issues?

Mike O'Brien: I am afraid that the particular regulations to which the hon. Gentleman refers are not likely to be available during the passage of the Bill, so we will have to deal with them in due course. More generally, we are seeking to bring forward regulations as soon as possible, but we do not expect regulations on many of these issues to be available during the course of the Bill. Regulations on Bills are normally drafted after the Bill has completed its progress. On particular occasions, we are able to provide drafts of regulations, but with this Bill, which is enormously complex, we believe that it is right that when regulations are brought forward, they should be available for the normal period of consultation with various stakeholder groups. That is not likely to be the case between now and June, when I hope that the Bill will complete its progress through the two Houses.
On the other issue that the hon. Gentleman raised, the valuation day is going to be set by the board. The clause provides for the rights to be valued on the valuation day, and that is just the day that the board of the PPF uses to determine the value of the rights. The board will have to take a view, and the way in which it does so will have to be set out in regulations, as will what that valuation day will be. He is quite right that that could be quite an important event for individuals, because if the valuation day is either side of a particular date, it could affect the amount of money that people are entitled to receive. However, the best way of dealing with that is by setting it out in regulations, rather than trying to deal with it in detail. The aim of the legislation is to set out parameters, and more detailed guidance will be available in regulations.
What we are doing through these clauses, in essence, is to set out a framework. This is divorce law, and divorce law is inherently there to resolve conflict. There is thus likely to be quite a lot of contesting of the detail of what that law says, so it is important that the detail is there. That means that we are setting out the skeleton framework here in legislation. In due course, we will fill that in with both regulations and guidance so that we get the level of detail required to deal with divorce conflicts. I am afraid that that will take more time.
I am sorry that I cannot give the hon. Gentleman more detail about the valuation day, but I have set out the way in which we propose to deal with it. He is right to say that it is important, but the definition of the valuation day provides scope for the board of the PPF to choose the day when the valuation will be made, provided that it falls within the implementation period. That flexibility broadly follows existing provisions on the calculation of cash equivalent values for early leavers and pension sharing.
I accept that that is a less than fulsome description of the measure, but I cannot say much more about it. A fixed valuation day might make it unnecessarily complex for the rights to be valued, for example, which is why we think that it is better—as with pension sharing—that whoever is carrying out the sharing exercise uses a convenient date during the period set out in legislation.

Question put and agreed to.

Clause 85, as amended, ordered to stand part of the Bill.

Clause 86 ordered to stand part of the Bill.

Clause 87

Reduction of compensation

Amendment made: No. 171, in clause 87, page 41, line 6, after ‘order’ insert ‘or provision’.—[Mr. Mike O'Brien.]

Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: I am again on a search for knowledge. A lot of issues will be raised with the PPF and a lot of calculations will have to be made, some of them in respect of relatively small claims. After analysing some of the figures, it is clear that, for both the PPF and the FAS, the size of payments will range dramatically, from relatively small to relatively large. Has any work been done on the extra administrative cost to the PPF of the provisions? There will clearly be a significant administrative cost. One could establish a likely cost based on the number of divorces a year, which is sadly increasing all the time, the claims on the PPF and the number of sharing orders a year. How might that impact on the administrative levy that pays for the PPF? The Minister might not have such facts at his fingertips, so I am happy for him to write to me about them. It strikes me that there may be a not insignificant extra cost on the PPF.

Mike O'Brien: Usually, the administrative costs to carry out such an exercise would be levied on the couple in a divorce settlement. The cost of the exercise would be something for them to identify. The PPF will need to work out the cost to it of the exercise and then charge for it. The hon. Gentleman referred rightly to the relatively high level of divorce in this country, but in most cases—not all, because some will be pre-retirement matters—we will be dealing with pensioners, and the divorce rate among pensioners is not as high as it is otherwise.
Not a very large number of people will be affected, so it is unlikely that the administrative costs to the PPF will be substantial and, thus, the cost to individuals who request an administrative processing of their claim is not likely to be great. The cost of having a pension share carried out by the PPF will depend on exactly what activities the board will have to undertake, but it is expected to be in the region of up to £3,000, which means that a couple undergoing a divorce or dissolution of a civil partnership will pay similar costs whether they are sharing a pension or PPF compensation.
The board of the PPF intends to charge divorcing couples similar rates as recommended by the National Association of Pension Funds, which obviously has to carry out similar exercises for divorces. I hope that I have dealt with the hon. Gentleman’s question.

Question put and agreed to.

Clause 87, as amended, ordered to stand part of the Bill.

Clause 88

Time for discharge of liability

Question proposed, That the clause stand part of the Bill.

Andrew Selous: May I apologise to the Committee and to you, Mrs. Anderson, for not being here earlier? I was not here because Mr. Speaker granted me an Adjournment debate in Westminster Hall, which ended at only 11 o’clock. I know that this side of the Committee was in the very capable and experienced hands of my hon. Friend the Member for Eastbourne.
I want to make a small point about clause 88, which will shadow some of the discussion that we will have about the amendment tabled to clause 89. I notice that there is provision in clause 88(3) for regulations to extend the implementation period, but not to open up the possibility of shortening it. I wonder whether the regulations could be worded to allow for the implementation period to be varied, rather than just extended. Will the Minister comment on that?

Mike O'Brien: I will consider whether the regulations should be able to do that. I confess that I have not done so until now, but we are still looking at the drafting of the regulations. When we come to deal with them, I will consider whether it would be appropriate to do that.

Question put and agreed to.

Clause 88 ordered to stand part of the Bill.

Clause 89

“Implementation period”

Andrew Selous: I beg to move amendment No. 7, in clause 89, page 41, line 17, leave out ‘4 months’ and insert ‘2 months.’.

Janet Anderson: With this it will be convenient to discuss amendment No. 10, in clause 91, page 42, line 24, leave out paragraph (a).

Andrew Selous: On the same theme that I raised on clause 88, I am curious about where the figure of four months for the implementation period has come from, given that four months is quite a long time for someone on a low income to be without money that they should regard as rightfully theirs. This is a probing amendment—we have not alighted on a specific period of two months. I will be grateful if the Minister will comment on whether that period of four months could be reduced.
Amendment No. 10 is another probing amendment to find out why the implementation period can be postponed in prescribed circumstances and why that is necessary. Again, we are looking at the matter from the point of view of people who are in straitened financial circumstances and hardship and do not have the share of a pension that is rightfully theirs.

Danny Alexander: I echo the hon. Gentleman’s point and query why four months is deemed to be a reasonable time period in such cases. The Minister might have a good reason for alighting on the particular period of four months, but it seems appropriate that in such cases—particularly for those on low incomes who might need that money more quickly, such as people who are already in receipt of pensions—four months, if that is to be the period, should be the longest period and there should be an aspiration to get these things done more quickly. Perhaps the Minister has picked up on the four-month period due to the way in which arrangements work in other cases. For some people, four months could be a significant period of time and a cause of hardship, so I hope that the Minister will at least take that point on board when he responds.

Mike O'Brien: The four-month time limit in the Bill is the same as that for implementing a normal pension share, so the hon. Member for Inverness, Nairn, Badenoch and Strathspey is quite right that we have looked at arrangements that apply in other areas and taken that as the standard. That same time limit was arrived at following consultation involving the judiciary, family lawyers and trustees of pension funds. It is important that compensation sharing does not depart unnecessarily from established principles for pension sharing. Inappropriate changes would lead to additional complexity and create confusion and uncertainty, and having different time limits would seem to run counter to our aim. We take the view that this is what would normally be the case, and therefore we would apply those criteria.

Andrew Selous: I understand that we might need to have the period of four months. However, could it be possible—or would the Minister like it to be best practice—to try to make the implementation period shorter? I am wary of setting down four months in legislation so that the solicitors and the PPF think, “We have four months, so we do not need to worry,” or, “We have three months, three weeks and three days, and that is our statutory duty,” when if things could be done quicker, no hardship would have been caused. That would be a good thing to try and achieve.

Mike O'Brien: Normally the process would be done more quickly. Four months is a maximum, and the aim would be to get things done within that time. However, to implement a compensation share, the PPF must calculate how the order will reduce the transferor’s compensation, and calculate the level of compensation due to the transferee. That will take time and must be done accurately. Once that is done, the PPF must ensure that correct arrangements are in place so that the two parties receive the correct payments and are informed of their new entitlements. They should also have the opportunity to respond to the figures that they have been given, and to raise any queries about the accuracy of those figures. In divorce cases, lawyers want to query just about everything, especially if there is a level of conflict.
Where the transferor is already receiving monthly payments when the order, or qualifying agreement in Scotland, is made, it would be necessary for the PPF to give the person notice of the date that their payments will be adjusted and, if appropriate, put in place immediate payments for the transferee. The PPF makes payments monthly, in advance, on the first of every month. Therefore it must have enough time to put those arrangements for payment in place.
In that sense, the period is a maximum. As part of best practice we would want the process to be done more quickly than the maximum time, and I understand that in most cases, for pension sharing, it is possible to do so. However, two months would clearly be too short a period if, for example, a calculation was made and the amount of that calculation and the way in which it was arrived at led to a dispute between lawyers. That dispute has to be resolved, and in the meantime there are lawyers who, with their usual speed, exchange letters and do the work when something arrives on their desk.
Such processes always take time, and it is unlikely that two months would be sufficient, although I accept that the amendment is probing. I wish that we could change the culture of lawyers, but that is, I think, a bit beyond our ken. We should stick with the current basis upon which changes are made. In answer to the hon. Gentleman, best practice would be a shorter period. This is the maximum, and we want to stick with the rules as they more generally apply to pension sharing.

Andrew Selous: I am reassured by what the Minister has said about best practice, and that he has noted the importance of trying to get things done right and as quickly as possible. He said that four months is a maximum, not a target to be aimed for. Having heard that reassurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 172, in clause 89, page 41, line 24, after ‘order’ insert ‘or provision’.—[Mr. Mike O'Brien.]

Clause 89, as amended, ordered to stand part of the Bill.

Clause 90

Discharge of liability

Andrew Selous: I beg to move amendment No. 8, in clause 90, page 41, line 39, at end insert ‘and transferor.’.

Janet Anderson: With this it will be convenient to discuss amendment No. 9, in clause 90, page 42, line 12, leave out subsection (8).

Andrew Selous: This is a small point relating to clause 90(2), which says that a notice must be sent to the transferee. There is nothing wrong with that and we certainly expect that to happen. However, that is also a significant event for the transferor, and it seems entirely reasonable that the person who is having their pension reduced and the person to whom a pension is rightly being paid should be informed in writing about what is happening. The Minister might agree, but we shall see.
I apologise for there not being an explanatory note to amendment No. 9, but we tabled it before the explanatory note system was in place. My concern about subsection (8) is that, albeit in a few circumstances because of biology, as it were, dependent children could lose out on what would have come to them as a result of the death of one of their parents.

Mike O'Brien: The clause sets out how the board of the PPF discharges its liability under a compensation-sharing order following a divorce, annulment, dissolution of a civil partnership or a nullity. It is important that the board can be certain that it has discharged its liabilities and that the parties to the divorce or dissolution are properly notified about how that has been done.
The clause makes it clear that liability is discharged when the notification is sent to the transferee that the sharing order has been implemented and that they have compensation rights in the PPF. Clearly, that cannot happen if the transferee has died, for example. Instead, we need to look at the rights of others on the death of a person. When members die, the PPF pays compensation to surviving spouses, civil partners, unmarried partners and dependent children when the scheme’s rules make the appropriate provision. That is why we need to ensure that, when the transferee dies before the transfer is complete, the correct compensation rights are created for their surviving partner or children. That is no different from the way in which the PPF would pay survivors benefits following the death of members after the transfer was completed. However, because the implementation is not complete, that is potentially a complex and somewhat technical matter, which is why the necessary provisions will be set out in regulations. Amendment No. 9 would remove the power to make those regulations.
Amendment No. 8 would mean that the board would have discharged its liability only when it had notified both the transferor and the transferee of the new rights created for the transferee by the compensation share. Clearly, it is right that both parties receive appropriate notification of the outcome, but discharging liability is different from merely providing information. It is right that information should be given to both parties on the outcome of the compensation-sharing order.
Regulations made under clause 93, which covers the supply of information about compensation sharing, can specify the information that the board of the PPF will have to provide to the parties in consequence of the implementation of the sharing order. The regulations will make sure that both parties to the divorce or dissolution receive the appropriate information about how the sharing order has been implemented.
Amendment No. 8 is thus unnecessary and has the potential to create ambiguity. We need a clear determination of when the legal process for the PPF board is completed. The clause sets out that legal process. It does not mean that the other party will not be informed. We intend to ensure under regulations that the other party will be informed, but it will not be a necessary part of the legal process for the board to have ensured that both parties were informed. Someone might have gone abroad or be difficult to contact. I have known of divorce cases in which someone has left the country and does not want to be available.

Andrew Selous: I accept what the Minister is saying, but for the avoidance of doubt—I accept that the discharge of liability is different from the passing on information—but the transferor will receive a letter or something in writing saying what has happened. I would be grateful if the Minister confirmed that.

Mike O'Brien: The straight answer is that that is our intention. There would be a requirement; not a legal requirement to complete the process, but that the PPF board should be in a position where it will inform both parties of the outcome of the process that they have undertaken. So information should be given to both parties, yes. However, there are circumstances—I am adding a slight caveat to it—where it is not always possible to get in contact with somebody in a divorce because, basically, they have disappeared. There will not be a requirement that that must be done, but there will be an obligation on the board to seek to inform so that both parties are properly informed.

Andrew Selous: Again, I am reassured by what the Minister has said about the intention of amendment No. 8. I accept that it should not happen by way of my amendment and the arguments that he has given. However, I am reassured because the purpose of the amendment is going to be achieved in terms of what the Minister has said. I am also reassured in terms of what he said about amendment No. 9, because he has reassured me that the regulations in subsection (8)(b) will deal with the issue that I was seeking to address. In that case, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 90 ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 91

Charges in respect of pension compensation sharing costs

Amendments made: No. 173, in clause 91, page 42, line 32, after ‘order’ insert ‘or provision’.
No. 174, in clause 91, page 42, line 32, after ‘provision’ insert ‘(“provision for apportionment”)’.
No. 175, in clause 91, page 42, line 34, at end insert ‘for apportionment’.
No. 176, in clause 91, page 42, line 35, after ‘order’ insert ‘or provision’.
No. 177, in clause 91, page 42, line 35, leave out ‘such provision’ and insert ‘provision for apportionment’.
No. 178, in clause 91, page 42, line 39, at end insert ‘or provision’.—[Mr. O'Brien.]

Question proposed, That the clause, as amended, stand part of the Bill.

Danny Alexander: I am sorry to slow progress for just a second, but I have a couple of questions relating to this clause, about child use and pension compensation-sharing costs. The clause gives, again, very broad powers for the Secretary of State to make regulations to allow the PPF to recover charges, and I guess that that is quite usual in the cases of pension compensation sharing on divorce. None the less, it would be useful if the Minister could give at least some reassurance that these charges will not be excessive, and that they will be in line with charges in normal such cases, so that anyone reading our proceedings can be clear that the intention of the clause is not in anyway to have punitive or excessive charges, and that whether he intends through regulations to put any constraints on the PPF in terms of the range of charges that it may or may not be allowed to levy in such cases.

Mike O'Brien: The board of the PPF intends to charge costs based upon the National Association of Pension Funds’ recommended scale of charges. It is broadly accepted that that is best, so that is the basis upon which it will act. That means that divorcing couples will be charged roughly as the pensions share compensation as they would be charged to share aid pensions. The sharing order will normally apportion costs, but the clause provides for the payment by the transfer, or where that is not the case.

Andrew Selous: For clarification, is that in terms of an hourly rate, or is it a percentage of the funds?

Mike O'Brien: I can give some information about the way in which these rates are charged. The PPF intends, as I say to follow the NAPF charging rates. I have here some quite detailed charging rates about pension-sharing costs for active and deferred members, which I can pass onto the hon. Gentleman. I am looking at a table, which talks about cash equivalent transfer values. Where the cash equivalent cash transfer value is between £150 and £200—[ Interruption. ] It would probably be easiest if I passed the document around the Room. The figures are somewhat complex but, essentially, not unreasonable. As I have already indicated, the maximum is £3,000, but the figures charged depend on the cash equivalent transfer values at various different stages.

John Greenway: I sympathise with the Minister’s difficulty in understanding those figures. In my experience, the biggest problem is not the fees, which seem to be wholly reasonable, but the calculation of the cash equivalent transfer value. That is not mentioned in the clause and is an entirely separate matter.

Mike O'Brien: The hon. Gentleman is quite right. The cash equivalent transfer value might well be an issue, and we must ensure that we have sufficient time to consider that. We have already discussed that matter. However, the fees set down on the right hand side of the document that I am handing round the Committee range from £150 up to £2,550 through a range of different figures. Those are the figures that run down the right hand side of the column. I thank the hon. Gentleman for the question, and I hope that with that reassurance we can move on.

Clause 91, as amended, ordered to stand part of the Bill.

Clause 92

Supply of information about pension compensation in relation to divorce etc

Amendment made: No. 179, in clause 92, page 43, line 10, at end insert—
‘(iv) orders for financial provision under section 8 of the Family Law (Scotland) Act 1985 (c. 37) (orders for financial provision);
(v) provision as to pension sharing, or pension compensation sharing, that is contained in an agreement that is a qualifying agreement for the purposes of section 28(1)(b) and (c) of the Welfare Reform and Pensions Act 1999 (c. 30) (activation of pension sharing) or this Chapter.’.—[Mr. O'Brien.]

Question put, That the clause, as amended, stand part of the Bill.

Danny Alexander: Again, I have a couple of points that relate equally to clause 93, so I have the chance to make them twice. Both clauses relate to provisions to allow the supply and sharing of information, and therefore presumably the transfer of information between bodies. I raised that point at an earlier stage when we talked about transferring information in other circumstances and it is an obvious one: the Minister may wish to reassure the Committee about the appropriate security provisions and so on that will be made with regard to information that is being transferred. There have been well-publicised problems about information being lost and during the course of a transfer. Therefore, if regulations are made under the clause to allow information to be passed from one body to another—for example, from a pension protection fund to another body—we must ensure that it is done in the most secure way possible to avoid any data loss taking place as a result of the clause.

Mike O'Brien: I reassure the hon. Gentleman that in terms of information being transferred between pension trustees and the PPF, or information being transferred further to the various transferors and transferees who will receive the payments, we will do all we can to ensure that information is properly handled. The PPF already has to handle substantial amounts of personal data, and it is right to highlight the importance of security. The PPF has managed to do that with some degree of skill. It is always the case, particularly in the light of recent events, that we should be more concerned than we have been that data can be lost. I reassure the hon. Gentleman that as a result of his comments I will draw to the attention of the board of the PPF that Members want it to be sure that its handling of data is at the level of security and competence that we have a right to expect.

Clause 92, as amended, ordered to stand part of the Bill.

Clause 93 ordered to stand part of the Bill.

Clause 94

Pension compensation sharing and attachment on divorce etc

Amendment made: No. 180, in clause 94, page 43, line 31, leave out ‘has’ and insert
‘and Schedule [Pension compensation on divorce etc: Scotland] (which amends in relation to pension compensation sharing orders similar legislation applying in Scotland) have’.—[Mr. O'Brien.]

Clause 94, as amended, ordered to stand part of the Bill.

Schedule 5 agreed to.

Clauses 95 and 96 ordered to stand part of the Bill.

Schedule 6 agreed to.

Clause 97

Pension sharing: power of Court of Session to extend time limits

Danny Alexander: I do not wish to entangle the Minister in Scots law—in fact, it is the other Minister’s chance to be entangled in Scots law, which is welcome. Will the Minister clarify the intention of the clause? It seems that it allows the Court of Session, as well as the sheriff, to be involved in decisions about extending time limits, but it does not extend time limits. Is that interpretation correct?

James Plaskitt: Broadly, yes, but I will clarify for the hon. Gentleman to get it straight on the record. The clause amends sections 28 and 48 of the 1999 Act, which deal with the orders that activate pension sharing on pension arrangements and on shareable state scheme rights respectively. The amendments deal with orders made in Scottish courts.
When a couple divorce or civil partners dissolve their relationship, they can ask for a financial settlement. One of the options open to the court is to make a pension-sharing or corresponding order. Such an order can be made against a pension arrangement or the shareable state scheme rights. For orders made under the Family Law (Scotland) Act 1985 or a corresponding provision to have effect, the person responsible for the pension arrangement must receive the order and the matrimonial documents within two months of the date of the order. If the order is not received within that period it is deemed never to have taken effect.
A party with an interest in the order may apply to extend the two-month period if it has expired and the order and the matrimonial documents have not been received by the person responsible for the pension arrangement. Applications for extensions can currently only be made to the sheriff. However, as I am sure the hon. Member for Inverness, Nairn, Badenoch and Strathspey knows, some divorces in Scotland are heard in the Court of Session. Currently, there is no provision for applications to be made to the Court of Session to extend the two-month period and there is no reason why the Court of Session should not consider those applications. Otherwise, such an application would have to be remitted to the sheriff. The clause gives the Court of Session in Scotland the same powers as the sheriff to extend the two-month period. That will be a modest but worthwhile improvement, which should help the pension-sharing process. I hope that that explains the clause and that the hon. Gentleman will agree that it should stand part of the Bill.

Clause 97 ordered to stand part of the Bill.

Clause 98

Interest on late payment of levies

Question put, That the clause stand part of the Bill.

Nigel Waterson: The purpose of clause 98 and accompanying schedule 7 is to allow for interest to be charged on late payment and levies to the PPF. That proposition is so obvious and reasonable that one wonders why it was not included in the original legislation. No doubt the Minister will explain that apparent oversight.
The explanatory notes, to which I like to refer from time to time, just to ensure that the person who drafted them was not completely wasting their time, says:
“There may be circumstances in which it would be inappropriate to charge interest on late payment of levies”,
and that there would be
“power to prescribe such circumstances in regulations”.
I will not waste my breath by asking whether the draft regulations are available, but it would be helpful if the Minister said what circumstances would constitute a good reason or an excuse for not paying on time. After all, a payment not made on time is costing money to all the people who pay the levies on time.
It is clear that the Pensions Act 2004 does not contain a power for the board of the PPF to make a charge of interest. The impact assessment makes the obvious point, which is that if these monies—these interest payments—were available, they could be used for investment and, presumably, to defray the overall costs of the levy to British industry. The research paper says:
“we would expect the fact that interest would be charged on late payments would reduce the incidence of late payment”—
although I suspect that that would depend on the interest rate and how it compared with how much the company had to pay for its own borrowings—
“as schemes would aim to pay Levy bills more promptly to avoid paying interest.”
It is calculated, on a particular rate of interest, that that would have brought in about £600,000, which is, as the saying goes, better than a poke in the eye with a sharp stick.
This matter is certainly worth pursuing. I will be interested to hear the Minister's explanation, or apology, for not putting such a provision in the previous legislation, although I appreciate that he was not the Minister responsible at the time, and I should like to know in what circumstances it would be inappropriate to charge interest in particular cases.

Danny Alexander: Further to those comments, again, I agree with the hon. Gentleman that it is sensible to have provisions allowing interest on late payment of levies relating to the PPF. Such provision should probably have been included in the 2004 Act, deliberations on which the hon. Member for Eastbourne was also involved in, as he said in response to an earlier point. Of course, for the sake of completeness, I am sure that Liberal Democrats were also involved in that legislation, too, so we cannot be wholly blameless in this regard either. None the less, the Government have the resources, as has been said before.
I should like the Minister to clarify whether this provision has been advanced to rectify an omission, whether there have been cases where levies have been paid late and whether there is a particular problem with late payment which the Pension Protection Fund has drawn to his attention. It will be interesting to know what information the Minister has, if any, about the extent of the problem of late payment, how late payments are being made and whether that is causing a problem for the PPF carrying out its business. In other words, having introduced these powers, does he expect that the PPF will need to use them regularly? What is the proportion of companies making late payment of levies to the PPF? Does the provision answer a significant practical problem that is currently being experienced or does the Minister regard it more as an insurance policy to ensure that it does not happen in future?

Mike O'Brien: First, I am assured that some of the levies were set in the Pension Schemes Act 1993. The 2004 Act merely created the PPF, but some of the levies were set out in the 1993 Act, for which another Government may wish to claim responsibility.

Nigel Waterson: I am sure that the Minister is desperately trying to shift the blame, but if the levies were being levied from 1993 onwards, what were they for if there was no PPF until 2004?

Mike O'Brien: When we came into office, we felt that protection under the Pension Schemes Act 1993 was not adequate. Given that there was broad support for the PPF, I presume that the hon. Gentleman’s party also felt that the provisions that it had put in place were inadequate. However, when it put them in place, it did not have in that Act, which provides that interest may be charged on late payment and makes sure that there is coverage for the Office of the Pensions Advisory Service and the pensions ombudsman, a provision for the levy to have interest if it is paid late. Perhaps the better argument would be that we should have spotted in 2004 the mistake made by the previous Conservative Government. As the hon. Member for Inverness, Nairn, Badenoch and Strathspey said, the hon. Member for Eastbourne was a member of the Committee considering the Bill at that time, while I was not, so perhaps he should have spotted the mistake that his Government had made in 1993. However, perhaps we can all share the blame.
Let me be clear. I mentioned that the levy covers the Office of the Pensions Advisory Service and the pensions ombudsman. The total general levy from occupational and personal pension schemes for 2008-09, for example, is expected to collect £42 million, but that will be divided. It will not all go to the PPF. About £7 million is earmarked to recoup one third of the deficit that has built up over the past three years. I shall return to that issue in a moment. The bulk—84 per cent.—of the ongoing £35.6 million is to pay for the Pensions Regulator, with the balance being split roughly between the Office of the Pensions Advisory Service and the pensions ombudsman. The general levy has not increased since 2005, when the Pensions Regulator replaced the Occupational Pensions Regulatory Authority, because of a ministerial commitment that we would not increase it.
In answer to the hon. Member for Inverness, Nairn, Badenoch and Strathspey, we need the power to tackle the late payment levies and 40 per cent. of the pension protection levy collected for 2006-07 was paid after 28 days, which accounted for about £114 million of the £271 million collected. We had quite a bit of late payment. The hon. Member for Eastbourne rightly asked whether there are circumstances in which it is justifiable to pay late. One of the reasons why we have had a lot of late payment in recent years is that there has been a dispute about the amount of levy. A number of the funds involved have said that the level of risk, for example, that is included in the calculation of the levy is wrong and that they are not as risky as all that. The funds have had it looked at again and, in many cases, it has been agreed that the levy can be reduced.
It seems that there was some justifiable reason for a late payment and, in such circumstances, it would be open not to charge interest on the late payments because that was justified; the original levy that was imposed was not right. There are circumstances in which it may be right not to charge interest. Obviously, there are circumstances in which there is no dispute about the level of the levy and payments just arrive late when it would be appropriate to charge interest. I hope that I have answered the various issues that have been raised.

Question put and agreed to.

Clause 98 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 99

Intervention by Regulator where scheme’s technical provisions improperly determined

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: When I first looked at the clause, I thought that it was very techie and that we did not need to say anything about it. All it seemed to do was to clarify the technical issues surrounding the powers of the Pensions Regulator under the Occupational Pension Schemes (Scheme Funding) Regulations 2005.
One of the things that drives the regulator is the principle that the methods and assumptions used by pension fund trustees are chosen prudently. For example, if they assumed that their members would live to the age of 36, that would clearly be a bit imprudent. All of this—surprise, surprise—emanates from the European occupational pensions directive of 2003. So far, so good. The clause, as I read it, does what it says on the tin and clarifies that the regulator can use their powers under section 231(2) of the 2004 Act, where the sole ground of concern is that the actuarial methods or assumptions do not appear to be prudent. However, what gives that topical salience is the flurry of press comment in the past few days about the changes in assumptions on longevity figures being proposed by the regulator. I gather that those changes are now out for consultation until May sometime. No doubt the Minister will be able to tell us a bit more about that. Potentially, those changes could have a dramatic effect on pension scheme deficits. I have seen one estimate that adds an extra £75 billion to the burden on existing schemes. Sometime this week, we will get on to risk sharing and how we can encourage various schemes to stay in business, as it were. The need for those measures is given extra urgency by these proposals.
One might say that it will cost £75 billion extra simply to reflect the fact that, for example, under the PPF’s current assumption a man will live to 87.9 years on average, which is up from 86.8 in its 2006 report and accounts. The figure being bandied around at the moment by the Pensions Regulator is 89. That is very encouraging if you are a man and, presumably, no doubt, even more encouraging if you are a woman—[Interruption.] I should tell my hon. Friend the Member for Bromsgrove, who makes a comment from a sedentary position, that the gap between the sexes is narrowing quite rapidly, although I will not speculate why that is so. Those figures raise some important issues that go way beyond the technical issue in the clause.
Regulators have been worried that schemes have been understating or underestimating the rate at which life expectancy continues to increase. I have read some statistics, which will no doubt perk up Committee members who may not have volunteered to sit on the Committee, that say that for every hour they spend here, their life expectancy increases by a quarter of an hour. That is quite dramatic.

John Greenway: This is an important point. When he says “here”, is my hon. Friend referring to service on the Pensions Bill Committee or in the whole of the House Of Commons?

Nigel Waterson: Time moves more slowly in this Committee. I think that Albert Einstein would have said something about serving on a pensions Bill Committee. Time appears to move slowly here. However, broadly speaking, we all end up in the same place, whether we are sitting in a Committee, in the Chamber or in our offices, which would make a nice change from sitting here.
The big issue is how we deal with this new development. It is very encouraging that, thanks to the foresight and wisdom of successive Governments, life expectancy has increased. Of course, we know that the state pension age of 65 for men was borrowed from Bismarck, who came up with it in the middle of the 19th century. That was a time when few people made it to the age of 65 and certainly not far beyond it, although I think that Bismarck did. How do we factor that in?
I was about to say that one could argue that, if the extra costs are £75 billion, so be it. That fact must be built in to pension schemes more generally. However, it is bound to be a factor in the attitude of sponsoring employers to keeping their existing pension schemes open to new or existing members. In the same way, to take an example, FRS 17, introduced at exactly the wrong point in the economic cycle in my opinion, had an effect on undermining that commitment.
Yes, it is important that we clarify that the regulator has those powers, but it is not the Committee’s job to argue whether the EU directive was sensible in the first place. As a Committee, we need to put all this in a broader context, which is the dramatic increase in life expectancy. Ultimately, matters such as obesity and selling off playing fields will have an impact on slowing the increase in longevity, but short of a massive pandemic it seems to go up and up inexorably, which is enormously encouraging.
I have a constituent who is 111 years old. Of course, Eastbourne tends to have a slightly older population than average, but it is remarkable how many 100th birthday parties I get invited to; sometimes two a week. That says something about the health service and all sorts of related matters, such as better nutrition. It also brings a different reality with it, which is how we pay for the very long periods of retirement that people will increasingly be enjoying—hopefully that is the right word—based on a reasonable income to do so.
Therefore, the clause seems relatively modest and inoffensive, but behind it lurks the elephant in the room—to use a marvellous and much over-used analogy—which is the question of rapidly increasing life expectancy. I would be fascinated to hear what the Minister has to say on those matters.

Danny Alexander: I am sorry to hear that the hon. Member for Eastbourne is not enjoying the Committee’s deliberations. Perhaps time slowing down means that he wants to spend more time in these sittings. Certainly, the record of the number of 100th birthdays in his constituency suggests that time there is speeding up, so there is a balance to be struck somewhere.
Dressed up as a technical clause, this raises an important point, rightly lighted upon by the hon. Gentleman. I do not wish to repeat his remarks, as he made many of the points that I had intended to make. However, the key word in relation to the clause is “prudent”.
The report released this week, which is now a matter out for consultation from the regulator, suggests that the regulator is doing its own work on what it considers to be prudent. Does that mean, should the clause be enacted, that the regulator will therefore effectively determine the actuarial considerations each scheme should make? Or is it a slightly looser arrangement, under which the regulator has the power to determine the prudence of the actuarial considerations? That does not mean that they have to be exactly along the lines of the examples that the hon. Gentleman gave, which have been reported quite widely this week. But, for example, a pension scheme, that made actuarial assumptions higher or lower than those made on the national average could, none the less, justify those assumptions as being prudent on the basis of its team members’ knowledge.
It would seem not quite right that uniform actuarial assumptions should be imposed by the regulator across all pension schemes. However, it is sensible and necessary, given the content of the European law, that there should be an ability to determine whether the actuarial assumptions made by the scheme are prudent.
I note, in closing, that the work of the Pensions Regulator on understanding the extent to which life expectancy is increasing has not only an implication for pension schemes in the private sector, which the clause refers to, but a significant effect on the liabilities of public sector pension schemes. That is a matter that is debated and highlighted all too rarely by Ministers. Information was recently brought forward, or at least endorsed, by the Government on the work of the Institute for Fiscal Studies on a rough estimate of unfunded public sector pension liabilities. Given that, if the new actuarial considerations were applied to public sector pension liabilities what greater extent would the Minister see those liabilities taking? There is also a massive implication for the public purse that is being swept under the carpet, and I would welcome his comments on that. While the debate concerns a technical point, it has much broader implications across the public and private sectors.

John Greenway: This is an important issue and my hon. Friend the Member for Eastbourne is on to something in raising it, but listening to the hon. Member for Inverness, Nairn, Badenoch and Strathspey reminds me what the issue was about originally, which is not quite what we are discussing. My understanding is that it is about ensuring that members of schemes have reassurance and confidence that the funding of their schemes by employers is adequate. Of course, in the great debate about public sector pensions that does not quite apply in the same way. Many public sector pensions are unfunded; one thinks particularly of the police service. What to do about the burgeoning liabilities of public sector pensions is a major political issue for this Government and any future Government. The Minister will remember a point I made on Second Reading, which is that it will be a huge tragedy if we continue to move away, right across the piste, from final salary schemes, simply on the argument about what is affordable. I have real concerns about what future generations may be entitled to in retirement, which in a sense is linked up with this issue.
On the issues that my hon. Friend the Member for Eastbourne has raised, there must be a concern if the regulator is to use the new power in clause 99 to impose an actuarial calculation regime on schemes that until now everybody has regarded as being well-managed, prudent and properly funded. I would share his concern if that were the case, however, my reading—I may have it completely wrong—is that this is actually a provision to assist members of schemes who feel that employers are not contributing sufficiently. That has been a major scandal in many schemes. The new power would enable the Pensions Regulator, which is the watchdog on behalf of scheme members, to make an intervention even if the cosy relationship between trustees and employers means that they think that all is well, which has also gone on in the past.
This is a critical issue. For the reasons I have stated, we need this power in the Bill. What we need from the Minister is a reassurance it will not be used across the board to impose new funding requirements on all kinds of schemes, in response to the longevity information that my hon. Friend the Member for Eastbourne rightly drew attention to. Those two points are different. Those schemes that the regulator feels are underfunded can now be dealt with even if the trustees and the employers think that they are funded sufficiently.
My understanding is that at the moment, the regulator cannot intervene—with this power he could, and that is important. I entirely share the concern of my hon. Friend the Member for Eastbourne. If the provision enables the regulator to interfere right across the board in employer pension schemes, particularly in the private sector, that could potentially impose funding requirements which would drive even more schemes into defined contribution arrangements and away from defined benefit arrangements. That would add to the problem of levelling down about which we are all concerned.

Mike O'Brien: I thank the hon. Member for Ryedale; he has encapsulated the argument well. We must ensure that members of a pension scheme can be sure that the funding of their pension scheme is adequate. On occasion, sometimes after discussions with employers, trustees have accepted that a particular level of funding is adequate when circumstances have changed. Over recent decades we have seen actuaries who calculate the amount of liability a pension fund has based upon the data that they look at. That data is about how long people are living. Over the last decade or so we have recognised that data about how long people have lived for the last few decades will no longer reflect how long they live in the decades to come. That has implications for pension funds, which will have to provide for greater funding if people are living longer—there must be more money to pay their pensions for longer.
Actuaries have made various calculations and shared views about projections for life expectancy, and therefore how much money pension funds have to have. However, many of the calculations established, particularly during the late 1990s, were wrong and the amounts that needed to be put in were higher than expected. The result of that is that a lot of work has been done by actuaries over the last decade, seeking to get a better fix on how long people are likely to live. There is no one-size-fits-all solution to deal with the point raised by the hon. Member for Inverness, Nairn, Badenoch and Strathspey. People in different types of occupations have longer life expectancies than others.
I represent a mining area. We still have a working pit and I am a miners’ MP—a rarity these days. In my area there are many people who have pneumoconiosis and other pit-related diseases, and life expectancy is therefore reduced as a result. The mortality rate in my local hospital, the George Eliot hospital, is very high. Various figures have suggested that that is due to a poor hospital—actually it is due to the fact that it represents an area where there is a history of particular types of disease. Therefore, if we make projections in a particular industry about how much funding we will need, we must have data about the nature of the life spans of people in that industry. The life span of a miner is now greater than in was in the past: care for their health and safety is greater, and the general health benefits and the lifestyles that people lead are better than they were in the past.
The miners’ pension funds must make calculations based not on how long miners lived in the 1970s, 80s and 90, but how long they are likely to live in the 2020s, 30s and 40s and decades to come. Provision in the fund must be made for those sorts of life expectancies. Some trustees—not in that particular fund, but in some—have taken somewhat conservative views about life expectancies. I use the word “conservative” with a small “c”. The result is that the fund is underfunded, or at least that there is some concern among members about its adequacy.
The regulator has a specific ability to intervene, as the hon. Member for Ryedale suggests, but there is also a more general issue, to which the hon. Members for Eastbourne and for Inverness, Nairn, Badenoch and Strathspey have referred: what about the concerns that the regulator may have that some pension funds may well not have made adequate provision, and how do we ensure that there is adequate provision in pension funds and that trustees are properly advised about how to approach such issues of increased longevity?
The clause addresses an uncertainty that has arisen about the circumstances in which the pensions regulator can use its powers to regulate a scheme funding requirement for private sector defined benefit schemes. The regulator has a range of scheme funding powers that it can use where there has been a breach of the legislation, or where the trustees and sponsoring employers cannot reach agreement on a key aspect of the scheme’s funding arrangements.
One of the duties of a pension scheme’s trustees is to decide which actuarial assumptions to use. They can look at particular actuarial valuations of their scheme as a result of that. Legislation requires that those assumptions must be chosen prudently. Where it appears that the trustees have not complied with that requirement the regulator has the power to specify what assumptions must be used.
The regulator has recently faced challenges to its power to intervene where the actuarial assumptions used in a valuation do not appear to have been chosen prudently by the trustees. The actuarial assumptions used in a valuation are crucial to establishing the scheme’s correct funding position, and therefore the level of contributions payable by the sponsoring employer.
The clause does not give the regulator any new powers. It clarifies what powers we assumed the regulator had. It simply ensures that the regulator can use its scheme funding powers, thereby protecting both members’ benefits and the PPF, where the assumptions chosen by trustees do not appear to be prudent. In that sense, the hon. Member for Ryedale is entirely right.
The hon. Member for Eastbourne has however raised the broader issue about the recent consultation document, which was published yesterday. I want to tell him clearly and candidly that the regulator takes its independence very much to heart and is clear that it has a role to look after the general security of the industry and make sure that trustees consider appropriate actuarial assumptions. Therefore it took a view that it wanted to publish the consultation document.
When I was made aware that the regulator was about to do that—and I saw some of the media—I approached it, and we considered the matter. Once pension fund representatives examine the document they will see that it is essentially a consultation document, to ask them their views on how those issues of increased longevity should be dealt with. It is not a diktat from on high. It is an attempt by the pensions regulator to engage in a serious process of examining actuarial projections, which are constantly changing.
That has implications for pension funds. We do not know quite what those are yet. Some of the headlines that I saw in the Daily Express and elsewhere are lurid, fanciful projections based on journalists seeking to get a headline from an issue that would probably be seen as more technical than anything else. The implications are profound and important; but they are also technical. The question is how best to make the calculations, and by what means to deal with a major change in society. It is a very welcome change: on average we are living longer. That is great, but it has to be paid for, and that sometimes is not so great, because it leads to problems over where to find the money.
We need a way to gauge how much we must pay, and that is why those actuarial issues require broad discussion. What the regulator has sought to do is set out a consultation document that says, “Look, we have an issue here. Let’s talk about it and discuss how we can best calculate this. These are our ideas, what are yours? Let’s have a proper consultation discussion about the best way in which trustees can deal with the issue and have appropriate actuarial calculations for your particular industry and, more broadly, for pension funds as a whole.”
I condemn some of the lurid headlines. I do not think that they are helpful. They are raising fears among pensioners, which is unnecessary. At the same time, however, this is a genuine issue that needs to be dealt with in a technical and serious way. What the regulator has done, independently of Government, is to put forward the idea of having a broad-based consultation on an enormously important issue to see whether we can get a consensus between trustees and actuaries about how to proceed.

Andrew Selous: I am listening with great interest to the Minister. We are all grateful to him for his very discursive and useful analysis of this very important matter. However, I am not aware that he has responded to the point that was raised by my hon. Friend the Member for Eastbourne about the big increase in childhood obesity and type 2 diabetes. Are those conditions feeding into the life expectancy figures? While I accept that people are living longer, we are all aware of the increase in childhood obesity and I wonder whether that has been factored into the actuarial figures. Perhaps the Minister could get back to the Committee at a later stage on that important issue.

Mike O'Brien: Actuaries will have to take into account projections of the possible impact. I do not know whether they have decided on the projections. The extent to which they need to take them into account will depend on the type of industry in question. There are some occupations in which obesity is unlikely to be a problem. However, other occupations might need to take into account issues related to obesity. This is not a one-size-fits-all issue. It is about getting trustees in particular areas and particular occupations to be able to project what sort of longevity members of particular schemes might have and therefore what the adequacy of funding will be. One of the issues that they will consider when they make their calculations is the projections offered by the Office of National Statistics, which will deal with the sorts of points raised by the hon. Gentleman.

Julie Kirkbride: In terms of affordability and what is set out in the Bill that we are currently looking at as opposed to the consultation exercise that is now going on, what kind of options for affordability is at the behest of the regulator? Is it simply to increase employers’ contribution, to change the amount of pension that will be paid out, or to stop pension holidays? In determining affordability, what kind of issues can the regulator decide upon? Can it increase employers’ contributions to beyond 3 per cent. that is set out in the regulations for lower paid workers?

Mike O'Brien: In terms of personal accounts, projections about life expectancy will obviously have a relevance. However, we are dealing with defined benefit schemes rather than defined contributions schemes. In defined contributions schemes, such as personal accounts, the amount that is built up in the pot will determine the amount that the person gets. Although it is a relevant consideration, it does not have the crucial importance that it does in the defined benefit scheme, which is, in effect, a final salary scheme. In such a scheme, the employer may well have the obligation, but it may, in some circumstances, be shared with the employee to ensure that the scheme is adequately and properly funded. If a projection by an actuary employed by a scheme says that they expect a defined benefit scheme to have a longer life expectancy, in some cases, depending on the terms of the scheme, it will sometimes predominantly affect the employer because they will have to properly fund the scheme. The hon. Lady asked whether it would affect issues such as holidays and so on, which employers might take as contributions—the answer is yes. If it looks like there is a surplus, and if new projections suggest that the surplus is not that great, a holiday or whatever the employer may have felt possible may not be possible. The level of adequacy of the funding will have been increased, because of new projections on longevity. Holidays and other things will be affected.
The reason why I am concerned about lurid headlines on whether some pension schemes are able to be paid is that in the vast majority of cases, they are not justified. In some cases, the headlines are about life expectancies some decades into the future. The provisions that must be put in place now will deal with a problem that will occur in 2050, say. The problem does not exist now, so there is plenty of time to make provisions to deal with it. When the consultation document was published, the journalists said, “We could have this problem now—the schemes are underfunded”, but that is not the case. The problem may well appear only in decades to come, so there is plenty of time between now and then to make adequate provision to deal with it.
The hon. Member for Ryedale, with his usual precision, touched on the broader issue of the move away from final salary schemes, which has been going on since the 1960s. Some 8 million people were in private final salary schemes in the 1960s; the number fell to about 5 million by 1995; and it has now gone down to about 3 million. Only some of those are open schemes. There has been a major change, and one of the things that that the Bill does more broadly is bring about deregulation changes that will encourage people to stay in, and employers to stay with, final salary schemes. I am not claiming that the Bill will reverse the process to which the hon. Gentleman referred, whereby employers move away from final salary schemes, but I hope that it will slow or steady it. In the past two or three years, the movement away from final salary schemes has steadied, and employers tend to stay with them more than before. I hope that we will further be able to steady the process—I do not think that we will reverse it—but, hopefully, we will be able to extend final salary schemes for longer. They are good schemes, so we should keep them if we can. No doubt we will have the opportunity to discuss that further when we debate shared risk.

John Greenway: It is my understanding that the regulator will be enabled under the clause to impose a different actuarial calculation. That does not mean that the whole cost will fall on employers; there could be negotiations about employees increasing their contributions.

Mike O'Brien: The hon. Gentleman is entirely right. It will depend on the scheme, so the terms of those will be relevant, but the cost will not necessarily always fall on the employer. The issues are complex—sadly, lurid headlines do not help public understanding—and they need to be explained seriously and in a way that recognises the long-term nature of some of the problems that we need to address. The clause will enable the regulator and everyone else to know that it has the powers—we always assumed that it had such powers—to say that trustees and employers cannot continue to underfund schemes, and to intervene and say that employers must have an appropriate actuarial longevity assumption in their pension scheme and ensure that it is properly funded.

Question put and agreed to.

Clause 99 ordered to stand part of the Bill.

Clause 100

Exclusion of transfers out in certain cases

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I am slightly puzzled by the clause, which is tucked away all on its ownsome. We had significant, substantive debates earlier in our proceedings about transfers in and out of personal accounts, and I wonder what the clause is for. As I read it, it seems to deal only with transfers out of schemes set up under clause 50, but it harks back to the Pension Schemes Act 1993, so perhaps I am wrong about that. It seems to give the Secretary of State a power to make regulations under that Act to prevent transfers out of a clause 50 scheme. On what basis would that power apply, and in what circumstances?
The concerns that we have expressed in previous debates have been about transfers into personal accounts and trying to retain a Berlin wall between existing provision and personal accounts—in other words, trying to ensure that personal accounts do not undermine good and more generous existing provision. The clause seems to be about only transfers the other way, and I am I sure that the Minister can explain it—in a sentence, if he is so minded.

John Greenway: I will be brief, because we want to make some progress. I agree with my hon. Friend and would like the Minister to tell us what the prescribed circumstances are. I may have this wrong, as if so I apologise to the Committee and the Minister—[Interruption.] The other Minister, the Under-Secretary. Not having been able to be in the Committee throughout the whole process, I apologise if this has already been discussed and debated.
My reading of the clause is that it enables the Secretary of State, through regulations, to effectively prohibit transfers out of clause 50-type personal account schemes. If that is the case, we also need to consider what limited exceptions there may be in which transfers out are permitted. The Under-Secretary will recall that, during the public evidence sessions, I raised the question whether, when and to what extent it might be prudent to allow limited transfers out, for example in respect of migrant labour. I mentioned the importance of ensuring that a personal accounts scheme is not eventually cluttered up with literally millions of relatively small, insubstantial contributions.
The Under-Secretary is nodding reassuringly to say that I am on the right point. In that case, I shall take 30 seconds longer to say that if what I have said is the case, we need him to clarify precisely what the prescribed circumstances will be and what time frame he envisages. If I remember correctly from the questions that we put to both Ministers on when transfers out might be permitted, it will probably be 2017—five years into the personal account arrangement—before that will be allowed. That is nine years away. For the purposes of the record and proper scrutiny, we ought to have something on the record to clarify the position. We cannot just leave it where it was at the end of the public evidence sessions when the Minister for Pensions Reform was one of the witnesses.

James Plaskitt: I know that the hon. Member for Eastbourne hoped that I might dispense with the clause in a sentence. Alas, no, because it is important to clarify exactly what it does. It is right to see it as, in essence, a paving power; that is its purpose. Let me explain how it relates to the earlier clauses to which the hon. Gentleman referred. It is right to say that there is a linkage, but the clause is there for a good reason.
We discussed our commitment to banning most transfers into and out of personal accounts when we debated clause 53. Clause 100 enables the Secretary of State to prohibit personal account members from transferring pension funds to other pension schemes. Our rationale for banning pension fund transfers is to position personal accounts as an effective, complementary addition to the existing private pensions market. The Government’s policy on transfers, and their commitment to review it in 2017—that is important—was widely supported by all stakeholders, as I am sure hon. Members will recall.
Let me explain in some detail why the clause is structured as it is. I think that that will answer the points that have been raised. Chapter IV of part IV of the Pension Schemes Act 1993 gives members of pension schemes the general right to transfer out of their scheme into another one, but section 93(1B) of that chapter contains a limited regulation-making power that enables schemes to ban transfers out in some limited circumstances. However, the power is not broad enough to allow a ban on transfer out of personal accounts, and therefore clause 100(2) widens its scope.
Clause 100(3) amends section 101F of the 1993 Act to enable the Secretary of State to introduce regulations to prevent members from transferring their pension credit benefit, which we discussed earlier, out of the personal accounts scheme. We plan to exercise the regulatory power in subsections (2) and (3) only in respect of the personal accounts scheme.
There may be some minor specific circumstances where we will want to allow a certain amount of flexibility. The hon. Member for Ryedale asked for a bit more information about them. It is important to stress that this will be looked at in 2017, at the time of the review, but we can already see circumstances for which it might be appropriate to make exceptions. Of three that have been identified, one is the stranded pots issue, which we touched on before. That is where someone who is over 55 wants to aggregate all their pension pots in different schemes into one fund in order to purchase an annuity. We might want to allow some flexibility in that area when introducing the transfer out regulations.
A second identified example is unvested pension funds. If an individual leaves an exempt scheme during the pre-vesting period, they may be allowed to transfer their accrued funds into personal accounts. Those will be cash transfers, not standard pension transfers of the type that would be prohibited, and the amounts will not count toward the annual contribution limit. The third example, which we discussed earlier, is the discharge of pension shares. That, too, would be appropriate in some circumstances.
However, as I said, the fundamental opportunity to review the matter in its entirety will come with the 2017 review, which is a long way off from now but not so long after the start of personal pensions. That would be the appropriate time to look at it. We will specify in legislation the prescribed circumstances in which personal account members will be prevented from transferring out of the scheme. The legislation will not prevent other transfers between existing pension schemes from taking place. It is important to stress that. The wider position on transfers will be kept under review until later.
The clause is integral to the design of personal accounts schemes. It will allow the Secretary of State to make regulations which will do three essential things: first, keep the scheme focused on serving the needs of the target market; secondly, facilitate the smooth introduction of the new scheme, reducing any risk of market turbulence; and, thirdly, promote simplicity for employers, individuals and the personal accounts administration.
That is why the clause was included. I hope that I have answered hon. Members’ questions and that they will agree to clause stand part.

Question put and agreed to.

Clause 100 ordered to stand part of the Bill.

Clauses 101 and 102 ordered to stand part of the Bill.

Clause 103

Polish resettlement act 1947: effect of residence in poland

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: Ever since I first saw the Bill, I have been fascinated by this clause and been determined to say something about it. I initially wondered whether the official printer had not made a mistake and incorporated something from wholly different legislation into the Bill, so I am keen to find out what lies behind it. I am sure that there is a story, and it is important that the Minister shares it. Why just the Poles for a start? What is the magic significance of 1 May 2004? Indeed, for that matter, what is the magic significance of 1947? I assume that the provision was designed to stop payments being made to former members of Polish forces who fought valiantly and alongside us in many theatres of the second world war, but who decided to chose to return to communist post-war Poland. I may have got it completely wrong, but there is a chunk of history here that deserves its moment in the sun—in Committee Room 10.

James Plaskitt: Well, the hon. Gentleman asked for it, so here comes the history.

Nigel Waterson: The Schleswig-Holstein question.

James Plaskitt: Almost. I am very grateful to the hon. Gentleman for giving us the opportunity to visit the question, and I shall give him the history that he asks for.
The Polish Resettlement Act 1947, which is why the clause refers only to Poland, permitted a scheme to be made to award pensions to members of the Polish forces injured or killed during service under British command in the second world war. It provides an equivalent to the main war pension scheme for those forces. The current Pensions (Polish Forces) Scheme 1964 was set up on the basis that at some point after the end of the war, the Polish Government would take responsibility for members of the Polish forces. No Polish Government have, therefore pensions continue in payment for those individuals.
A European Court of Justice ruling in October 2006, on a reference from a Dutch court, found that similar residence restrictions in a Dutch scheme for paying benefits to second world war civilians were contrary to the principle of EU citizens’ freedom of movement between member states, as set out in article 18 of the European convention on human rights. That was notwithstanding member-state competence to make rules for the payment of war pensions. The ECJ held that although the objective of the residence condition of restricting benefits to those connected to Netherlands society was legitimate in principle, the condition was not a proportionate means of achieving the legitimate objective. I am sure that the hon. Gentleman is following this.
Advice received from Ministry of Defence lawyers and Cabinet Office legal advisers confirmed that the residency provision in the 1947 Act cannot be justified in relation to beneficiaries who were EU citizens and had moved to Poland after Polish accession to the European Union on 1 May 2004, unless they received the same amount from Poland as they used to receive in the United Kingdom. The Polish system of war pensions is more restrictive than that provided under the 1964 Scheme, and it therefore does not provide the same benefits. The number of beneficiaries under the Polish scheme is, unfortunately, shrinking fast. It was 730 in 2007, and most beneficiaries are elderly and well settled in the UK. They may be in Eastbourne, in which case they will live quite a long time. It is highly unlikely, therefore, that significant numbers will chose to return to Poland in the remaining years of the scheme. However, some might, which is why the clause is important. The number of beneficiaries who have moved to Poland since 1 May 2004, and who have had their pensions withdrawn, is understood to be fewer than 10. That is the history. That is the reason. I hope, therefore, that the hon. Member for Eastbourne will understand why the clause is in the Bill.

John Greenway: I am now even happier that Polish plumbers, electricians and builders are contributing income tax and social security payments ensuring that we can continue to afford such pensions being paid to Polish citizens in Eastbourne well over 100 years of age.

James Plaskitt: That is a perfectly valid point and an appropriate note on which to end our brief sojourn into Polish-UK relations.

Question put and agreed to.

Clause 103 ordered to stand part of the Bill.

Clauses 104 to 108 ordered to stand part of the Bill.
Further consideration adjourned.—[Mr. David.]

Adjourned accordingly at thirteen minutes to One o’clock till this day at Four o’clock.